Consumer evaluation of perceived risks for goods and services

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Consumer evaluation of perceived risks for goods and services

Mike Bendixen

&

Graham Gault

Graduate School of Business Administration, University of the Witwatersrand. P.O. Box 98, Wits, 2050 Republic of South Africa Received May 1995

Perceived risk is known to be an important determinant of consumer behav1'our However . . , pnor researc · h h as ocuss fi ed on goods rather than services. The purpose of this exploratory research was to identify any diffi · · f · d · . . erences betw een go ods and serv1.ces m terms o perceive nsk an? nsk redu~tion strategies. Two new components of risk, namely specification risk and the nsk of loss of control, were identified as bemg specifically associated with services. Empirical evid nc th ed l ads

h l · h , · · . e e ga er e

to t. e cone us10.n t at as 1ar as nsk 1s concerned, a simple classification of products as goods or services is inadequate: an additional hybnd class compnsmg both goods and services is also necessary. These three categories of od t

. d . h diff f . pr uc are

associate wit erent ~pes o perceived ask. Also, risk reduction strategies were found to be dependent on product rather than on the type of nsk.

Waarn~em~~ risiko word as 'n belangrik ~eterminant van verbruikersgedrag beskou. Die fokus bet egter in vroeere navorsmg m n groter mate ~p goedere as ~1enste geval. Die doel van hierdie ondersoekende navorsing was om enige versk1lle tussen goedere en d1en~te te 1den~ifiseer. ten o.ps~g.te van "".~eembare risiko en risikoverminderingstrategiee.

~"".ee. nuwe komponente van nsik~, naamlik spes1fikas1ensiko en die nsiko van verlies aan beheer, is gei'dentifiseer as nsiko s wat. m die besonder met d1enste geassosieer word. Die empiriese bewyse wat ingesamel is, lei daartoe dat die g~volgtrckkmg gem~ -:vord da~ ~over as wat dit risiko ~ng~, 'n eenvoudige klassifikasie van produkte as goedere of d1enste onvoldoende 1s: n adckbs1onele basterklas wat u1t be1de goedere en dienste bestaan, is ook noodsaaklik. Hierdie drie kategoriee van produkte word met verskillende tipes waarneembare risiko geassosieer. Daar is ook gevind dat risikoverminderingstrategiee afhanklik is van die produk, eerder as die tipe risiko.

Introduction

It has long been recognized that perceived risk plays an important role in consumer buyer behaviour (for instance Bauer, 1967; Cox, 1960; Taylor, 1974; Engel, Blackwell &

Miniard, 1986). Cox states:

'The basic assumption is that consumer behaviour is goal orientated. When the consumer identifies a situa- tion and defines a set of buying goals with uncertainty being perceived in changing from the existing state to attain the goals, then risk is said to exist' (1967: 37).

The study of perceived risk has been primarily focussed on consumer buying behaviour with respect to goods (for instance, Cunningham, 1967; Perry, & Hamm, 1969; Jacoby &

Kaplan, 1972; Kaplan, Szybillo & Jacoby, 1974; Lutz &

Reilly, 1973 and Bettman, 1973). The literature relating to perceived risk for services is limited (for instance Lewis, 1976; Guseman, 1977; 1981 and George, Weinberger &

Kelly, 1985). More recent research exploring the evaluation process of goods and services (for instance Ewels, 1989; Ve- negas, 1990; Kellen, 1990; Anderson, 1991; Cambitzi, 1991 and Borman, 1993) has indicated that different aspects of perceived risk are key discriminators between goods. services and knowledge products.

The purpose of this exploratory research was to identify any differences between goods and services in terms of perceived risk and risk reduction strategies.

Literature review

Roselius (1971) found empirical evidence that consumers have preferences for different methods of risk reduction for different types of loss or risk. He identified time, hazard, ego and money as the primary types of losses that consumers can incur. In the Jacoby & Kaplan (1972) study, five components of risk were identified, namely performance, social, financial, physical and psychological risk plus a measure of global (overall) risk. Performance risk was found to explain more

than any other type of consequence across twelve different goods. Lewis (1976), using these six measures plus the time risk dimension suggested by Roselius ( 1971), studied ten services, ten goods and ten good-service combinations. He found that services were perceived to be riskier than goods in all types of risk except physical, where there were no perceived differences. Good-service combinations were perceived to represent higher risk than goods on all dimensions of risk.

Cunningham ( 1967) conceptualized perceived risk as com- prising the components of uncertainty and consequence. He used these two scales to derive a global perceived risk measure. Guseman ( 1977) utilized the Cunningham ( 1967) approach of looking at uncertainty and consequences to examine the differences between goods and services. He also made use of the components of physical, financial, ego and time loss. Guseman ( 1977) found that services were perceived as having more risk than goods on all dimensions.

George, Weinberger & Kelly ( 1985), using an instrument very similar to that of Lewis (1976), studied four paired goods-services (for example colour television and colour television repair) which were evaluated by 100 consumers in a mall intercept study. Important differences between product pairs were found; for instance, the good was found to be more risky on the financial dimension for the colour television/colour television repair pair while the service was found to be more risky for the eyeglasses/eye examination and carpeting/

carpet cleaning pairs. These findings led George et al. to con- clude:

'As contrasted with the previous work by Lewis ( 1976) and Guseman (1977; 1981), an important finding of this study is that the generalizations suggesting that services are universally perceived as more risky than goods are extremely tenuous?' (1985: 91).

Zeithaml posited eleven hypotheses regarding the differences in the consumer evaluation processes between goods

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and services. Besides the generic hypothesis that consumers perceive greater risks when buying services {hypothesis 8), she states:

'Hypothesis 10: Consumers attribute some of their dissatisfaction with services to their own inability to specify or perform their part of the service.

Hypothesis 11: Consumers may complain Jess fre- quently about services than about (goods) due to their belief that they themselves are partly responsible for their dissatisfaction' ( 1981: 189).

Both of these hypotheses encapsulate a category of risk not previously identified in the literature, namely specification risk which is the risk of the consumer having difficulty in specifying the nature of the desired service. Ewels ( 1989) tested the Zeithaml ( 1981) hypotheses and confirmed that risk was indeed the principal discriminator between certain categories of goods and services. Durable goods as well as equipment-based, customized services with a low degree of customer involvement (for example television repair, car repair or service, household move) were characterized by the locus of risk being in the product itself. In contrast, customized services with a high degree of consumer involvement (for example legal advice, medical diagnosis, restaurant meal) and standardized services and convenience goods (for example toothpaste, fruit juice, dry cleaning, photographic developing) were characterized by the locus of risk in the specification of the product.

Venegas (1990) replicated this study for office supply products, Kellen (1990) for hospital in-patient services and An- derson (1991) for computer goods, services and strategic software. In all cases, locus of risk emerged as a key discriminator among the products studied and the importance of specification risk was confirmed. Cambitzi (1991) replicated and extended the Ewels (1989) study by incorporating additional hypotheses that discriminate between goods and services based on consumer behaviour theory and qualitative research input. As far as risk was concerned, these studies confirmed Ewels' (1989) findings.

Bendixen (1991) consolidated these results to develop the consumer evaluation model illustrated in Figure 1. The pure goods segment is characterized by products having high degrees of search qualities and hedonistic utility. The evaluation process includes the use of price, brand name and store name as indicators of quality. Specification and ego risk are also characteristic of this segment. Typical products include durable and semi-durable products such as new car, furniture, television set, car tyres, suitcase, clothing.

The grudge purchase segment is characterized by functional utility and a high level of search qualities as well as a high degree of conventional (performance and physical) risk.

Typical products include a used car, household move, television repair and car service. The pure service segment is characterized by high degrees of credence qualities and functional utility. The evaluation process encompasses the appearance of premises and staff as well as the presence of other consumers as indicators of quality. There is a reluctance by the consumer to change supplier or try anything new as well as a feeling of little choice of alternative suppliers. Word of mouth recommendation is key to decision-making. Typical products include legal advice, medical diagnosis, nursery

Functional Utilitiy

Convenience

Purchases

Search Qualities

~ ~

Figure 1 Consumer evaluation model

school care, banking and life insurance. The convenience purchase segment is characterized by high degrees of credence qualities and hedonistic utility. Convenience, consideration of 'doing it yourself' and post-purchase evaluation are important aspects of the consumer evaluation process. Typical products include a mixture of goods and services such as toothpaste, fruit juice, dry cleaning and photographic development and printing.

Based on the research cited, the following propositions are posited:

- Proposition 1: Financial, ego, performance, pschologicaV emotional, physical danger, time, specification and loss of control are distinct elements of perceived risk.

- Proposition 2: Different categories of products are characterized by different types of risk. A simple categorization of products as goods or services is insufficient in this re- gard.

Roselius (1971) identified eleven risk reduction methods used by consumers:

- endorsements;

- brand loyalty;

- major brand image;

- free sampling;

- store image;

shopping around;

word of mouth;

money back guarantee;

expensive model;

private testing; and government testing.

Guseman (1981) adopted the risk reduction techniques de- veloped by Roselius (1971) with a view to test the hypothesis that different risk relievers are used by consumers for goods rather than for services. He found that when purchasing services, consumers were more likely to use the most con- veniently located store and use reference groups for goods.

Consumers were also less likely to seek information from the store and shop around when purchasing services.

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Based on these findings, the following additional proposition is posited:

Proposition 3: Consumers use different risk reduction techniques when buying goods than when buying services.

Research methodology

In order to test these three propositions, a two-staged study was conducted. In the first stage, in-depth interviews were conducted with a quota sample of 15 female and 15 male adults. The Kelly repertory grid technique (see Fransella &

Bannister, 1977) was applied to identify the types of risk perceived by consumers. Respondents were presented with a triad of products with which they were familiar and asked to select the one that was most different from the other two in terms of perceived risk on purchasing. The description of why this product was different and what the other two products had in common yielded the underlying constructs of perceived risk. This technique was supplemented by asking respondents to describe the worst outcome scenario when purchasing each product. Respondents were also asked to describe what they could do and what they believed the marketer of the product could do to avoid any such outcome.

The list of products (goods and services) is presented in Table 1.

Analysis of the responses confirmed the following aspects of perceived risk, all of which are mentioned in the literature:

1. overall risk;

2. financial risk;

3. ego risk;

4. performance risk;

5. psychological risk;

6. physical danger;

7. risk of wasting time; and 8. specification risk.

In addition, the risk of 'loss of control' by the consumer was identified as another potential dimension of perceived risk (designated risk number 9). This type of risk was associated with the services of a haircut and a restaurant meal.

Table 1 Key to products

Services Goods

BA Banking CL Clothing

cc

Credit card CT Car tyres

cs

Car service FJ Fruit juice

DC Dry cleaning FU Furniture

HC Haircut NC New car

HS Hotel service SC Suitcase

HM Household move TP Toothpaste

LA Legal advice TV Television

LI Life insurance UC Used car

MD Medical diagnosis NS Nursery school PD Photo developing RM Restaurant meal TR Television repair

The questions relating to risk reduction strategies were ana- lysed with a view to extract underlying themes. The following constructs emerged from this analysis:

I. brand loyalty reduces risk;

2. supplier image/phyical cvrdence reduces risk;

3. risk is reduced by recommendations from friends;

4. a demonstration or trial reduces risk;

5. communicating my needs helps to reduce risk;

6. encouragement from the supplier to communicate reduces risk;

7. if I do my homework my risk is reduced;

8. supplier providing information reduces risk, and 9. professionalism/supplier expertise reduces risk.

In addition, service quality was alluded to in several interviews. Thus, for the purposes of the second stage of the research, this list was supplemented with statements reflecting the five dimensions of service quality identified by Parasura- man, Zeithaml & Berry ( 1986), namely tangibles, reliability, responsiveness, assurance and empathy. The statements used were as follows:

10. appearance and manner of staff reduce risk (tangibles);

11. appearance of the facilities reduces risk (tangibles);

12. dependability, accuracy and consistency reduce risk (reliability);

13. staff who provide prompt action reduce risk (responsiveness);

14. staff who convey trust and confidence reduce risk (assurance); and

15. caring, individualized attention reduces risk (empathy).

In the second stage of the study, personal interviews were conducted with a quota sample of 60 female and 60 male adults in the Johannesburg area. Each of the nine components of risk and fifteen risk reduction strategies identified in the first stage of the research were converted into statements, for example for loss of control risk, the following statement was used: 'When deciding to purchase the following, I feel concerned as I am not in control of the outcome'.

Respondents were asked which of the 23 products listed in Table I (or none of these products) they associated with each statement.

The matrices of frequencies of product associations with the risk statements and the risk reduction strategies were each subject to correspondence analysis (Greenacre, 1984) and chi-squared trees analysis (Greenacre, 1988).

Hoffman & Franke ( 1986: 213) describe correspondence analysis as an exploratory data analysis technique that 'scales the rows and columns of a rectangular data matrix in corre- sponding units so that each can be displayed graphically in the same low-dimensional space'. Technically, the technique

'can be classified as a compositional technique be- cause it relies upon the association, for purposes of perceptual mapping, between objects and some form of descriptive characteristics' (Hair, Anderson, Tatham

& Black, 1992: 340).

In chi-squared trees analysis, the same contingency table is explored for homogeneity between its rows (or columns).

This is achieved by seeking which combination of two rows (or columns) of the original data matrix results in the smallest change in the total chi-squared statistic. A small change in this statistic implies a similarity in the profiles of the

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combined rows (or columns). This procedure is repeated until the matrix is reduced to a single row (or column). The joining

prg~e~~ is mapped on a dendogram and the joining distance taken as the change in overall chi-squared statistic resulting from the combination of the two rows (or columns). In this way, clusters of rows (or columns) with similar profiles can be ascertained. When used in conjunction with correspondence analysis, the association between clusters of rows (for example descriptive characteristics) and clusters of columns (for example objects) can be made.

These analyses are appropriate for the identification of and description of the nature of any associations between the products and the components of risk and the products and risk reduction strategies. The risk reduction strategies were super- imposed as supplementary points in the risk component space to establish whether there was any association between these two variables.

Results

Components of risk

An initial correspondence analysis run on the frequency matrix of components of risk and products indicated that the risk of physical danger was strongly associated with 'none of these' products. This strong association is sensible in light of the products chosen. These items had principal co-ordinates of -1 132 and -967 on the first axis with contributions of 48.1 % and 53.7% respectively. These values suggest that these elements of the frequency matrix were outliers (Hoff- man & Franke, 1986) and were therefore suppressed in subsequent analyses. The results of a subsequent correspondence analysis run are presented in Table 2.

The dendograms from the chi-squared trees analysis of this data are presented in Figures 2 and 3. At a 5% level of signi- ficance, the dendogram of products indicates that there are four, possibly five, distinct groupings while the dendogram of the components of risk indicates four distinct risk groupings.

The relative positioning of the risk components and products in the three axis correspondence analysis solution allows for the determination of which product grouping is associated with which risk component grouping.

The strongest grouping is for those products associated with ego risk, namely toothpaste, furniture, suitcase and clothing. These products may be purchased by consumers for both functional purposes as well as an overt display of the image that they wish to project. It is interesting that all of the products associated with ego risk are goods.

Products such as a used car, a household move or a credit card are associated by consumers with an overall and financial risk. Overall and financial risk are associated with a mixture of goods and services that typically involve, directly or indirectly, items of high value.

Products such as medical diagnosis, nursery school care, legal advice, haircut and life insurance are associated with psychological and specification risk - consumers are uncom- fortable with the fact that they may not acquire what they want or need partly as a result of their own inability to specify their needs. This class of risk appears to be associated only with services requiring professional or specialized skills or knowledge.

Forcing a five group solution of the results of the correspondence and chi-squared trees analysis separates loss of control risk as being associated with photographic developing, dry cleaning, television repair and car service. It is interesting to note that this distinctive class of risk is associated with only equipment-based services.

The last grouping is the association of performance and time risk with products such as banking, new car, television, car tyres, hotel service, fruit juice and a restaurant meal. This group of products is also a mixture of goods and services that appear to be characterized by standardization and strong branding.

These results are summarized in Table 3. It is apparent that Proposition 1 is not supported by the empirical evidence gath- ered in this study as only five distinct components of risk are indicated. However, the results do support Proposition 2.

While some of the product/risk groupings are distinctly goods or services, others are hybrids of these two broad categories of product.

Risk reduction strategies

The results of the correspondence and chi-squared trees analyses applied to the frequency matrix of risk reduction strategies and products are presented in Table 4 and Figures 4 and 5 respective! y.

Both risk reduction strategy and product dendograms indi- cate the presence of five distinct clusters at a 5% level of sig- nificance. The relative positioning of the risk reduction strategies and products in the three axis correspondence analysis solution allows for the determination of which product grouping is associated with which risk reduction strategy grouping.

The most striking grouping is for the goods new car, used car and television for which demonstration and trial is perceived to be the appropriate risk reduction strategy. Another grouping is for consumer goods (toothpaste, fruit juice) where brand loyalty, supplier image and physical evidence are the associated risk reduction strategies.

Financial service products, such as banking, credit card and life insurance, group together. Consumers doing their homework from information provided by the supplier is seen to reduce risk for these services. A large group of services such as household move, nursery school, medical diagnosis, legal advice, haircut, hotel service and restaurant meal are grouped together. Recommendations from friends, tangibles (staff and facilities), responsiveness and caring, individual attention are perceived as reducing risk for this group.

Table 2a Output of correspondence analysis

(a) Eigenvalue report

Axis Eigenvalue Individual % Cumulative %

0.08878 41.94 41.94

2 0.04720 22.30 64.24

3 0.04442 20.99 8523

4 0.01593 7.53 92.75

5 0.00718 3.39 96.15

6 0.00440 2.08 98.22

7 0.00376 l.78 100.00

Total 0.21166

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Table2b Detail report - products

Co-ordinates Contributions Squared correlations

Label Wght Fl F2 F3 CTRI CTR2 CTR3 CORI COR2 COR3

HM 65 214 -184 -243 33 47 86 274 210 366

BA 48 86 155 170 4 24 31 57 185 223

MD 65 92 -475 304 6 309 134 25 653 267

NS 31 -Ill -308 261 4 63 48 45 343 245

LA 62 134 -100 114 13 13 18 236 130 170

UC 118 102 9 -287 14 0 218 98 779

NC 61 -285 33 --89 56 11 713 10 70

TV 30 -56 293 59 56 2 28 758 31

CT 28 58 215 147 27 14 38 516 243

HC 58 -322 -259 170 68 83 38 431 280 121

DC 25 325 304 174 30

so

¹⁷ ³⁸³ 335 109

HS 37 ~ 321 176 0 80 26 0 542 164

TP 4 -285 335 -13 4 10 0 145 201 0

FU 21 -716 118 -299 123 6 43 806 22 140

FJ 7 75 261

~s

0 10 28 331 21

SC 5 -938 496 37 54 29 0 693 193

CL 29 -1122 -42 -190 415 24 951 27

PD 37 158 370 254 11 109 SS 93 513 242

cc

31 336 -107 -528 39 7 193 271 27 668

RM 54 -211 170 161 27 33 31 394 258 229

TR

so

256 67 43 37

s

2 690 48 20

LI 45 48 -171 ~8 28

s

36 457 71

cs

88 243 67 -391 59 8 3 814 62 21

Note: all numbers were multiplied by 1000.

(c) Detail report - risks

Co-ordinates Contributions Squared correlatiOIUI

Label Wght GI G2 G3 CTRI CTR2 CTR3 CORI COR2 COR3

Overall 140 224 -54 -199 79 9 124 341 20 268

Financial 128 257 ~7 -376 95 12 408 273 18 584

Ego 108 -792 12 -186 767 0 85 944 0 52

Performance 203 -16 270 96 313 42 3 740 94

Psychological 96 -26 -435 169 384 62 3 767 116

lime 63 121 244 159 15 140 64 90 366 156

Specification 151 -104 -323 308 8 139 134 42 399 363

Loss of control 30 136 -34 155 32 4 82 281 17 365

A mixed group of durable or semi-durable goods (furniture, identify appropriate risk reduction strategies. This is a clear car tyres, suitcase and clothing) and equipment-based ser- contradiction of Proposition 3.

vices (dry cleaning, photographic developing, television re- The data collected for the components of risk and the risk pair and car service) are grouped together. Communication by reduction strategies have the products in common. Thus, cor- the consumer, encouragement to do so by the supplier, sup- respondence analysis can be used to examine if there is any plier expertise and dependability are the associated risk re- association between the type of risk and risk reduction stra- duction strategies for this group. This gamut of strategies all tegy by using the one set of variables as supplementary to the

other (Hoffmann & Franke, 1986). When this analysis was appear to be aimed at substituting for demonstration or trial performed, the positioning of risk reduction strategies in risk which is not easily achieved for this group of products. space (or vice versa) was rendered meaningless by the very The results relating to risk reduction strategies are summa- low quality of representation of the supplementary variables rized in Table 5 from which it is clear that a simple categori- (typically 20% or less). This implies that risk reduction strate- zation of products into goods and service is insufficient to gies are product specific and not risk specific.

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..

...

.... .... ··,---- ... •----,

• . .. ^'

. . IC IOI LA U

PRODUCTS

Figure 2 Dendogram for 'products' resulting from the x_²trees analysis of the components of risk matrix

RISKS

Figure 3 Dendogram for 'risks' resulting from the x_²trees analysis of the components of risk matrix

Table 3 Product/risk groupings

Cllaracteristic risk

.

Cllaracteristic products

Ego Image enhancing goods

2 Overall and financial Goods or services having a high value

3 Psychological/emotional and Services demanding professional <r specification specialil.Cd skills or knowledge 4 Loss of control Equipment-based services

s

Performance and time Standardiud goods or servica

Conclusions

Implications for management

The findings of this study have some important implications for managment. Firstly, two new components of risk have been uncovered, namely specification risk and the risk of loss of control.

Specification risk is associated with those services demanding professional or specialized skills or knowledge (such as medical diagnosis, legal advice, life insurance, nursery school care and a haircut). An understanding that buyers of this cate-

.. _..

PRODUCTS

Figure 4 Dendogram for 'products' resulting from the X²trees analysis of the risk reduction strategies matrix

..

"

12 14 10 ti 1J

STRATJ:GO:S

Figure 5 Dendogram for 'strategies' resulting from the x_²trees analysis of the risk reduction strategies matrix

Table 4a Output of correspondence analysis

(a) Eigenvalue report

Axis Eigenvalue Individual % Cumulative %

1 0.04022 39.31 39.31

2 0.019S3 19.09 S8.40

3 0.017S7 17.17 7S.S7

4 0.006S9 6.44 82.01

s

0.00634 6.20 88.21

6 0.00366 3.S8 91.79

7 0.00307 3.00 94.79

8 0.00186 1.82 96.61

9 0.00108 I.OS 97.66

10 0.00088 0.86 98.S3

11 0.00066 0.64 99.17

12 0.00042 0.41 99.S8

13 0.00026 0.2S 99.84

14 0.00376 0.16 100.00

Total 0.10232

gory of services have difficulty in identifying what it is that they want or need, points to the need for an emphasis being

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Table 4b Detail report - products

Label Wght Fl F2 F3 CfRl CfR2 CTR3 CORI COR2 COR3

HM 49 -58 83 51 4 17 7 83 168 65

BA 64 -156 114 110 39 43 44 318 171 157

MD 56 -215 -11 -55 64 0 IO 641 2 42

NS 48 -117 36 -70 16 3 13 356 33 127

LA 56 -171 89 46 40 23 7 567 155 41

UC 68 351 107 -209 207 39 167 669 62 236

NC 64 333 137 -73 176 61 19 789 133 38

TV 46 386 -3 -10 172 0 0 963 0

CT 38 110 -18 182 II 71 198 5 540

HC 43 -209 -59 76 46 7 14 359 28 48

DC 26 -105 -163 -19 7 36 149 361 5

HS 51 -228 -82 -135 65 17 53 474 62 168

TP 16 364 -484 333 52 191 101 273 485 230

FU 33 84 -87 29 6 13 2 192 206 24

FJ 15 315 -461 314 38 168 87 232 496 231

SC 15 22 -136 167 0 15 24 4 159 239

CL 29 -9 -167 88 0 42 13 392 109

PD 29 45 -127 -22 24 26 213 6

cc

³¹ -12 259 231 0 106 94 495 396

RM 54 -170 -139 -154 38 53 72 323 215 265

TR 41 -45 -31 4 2 2 0 58 27

LI 59 -72 202 186 8 122 115 61 475 402

cs

60 -57 -52 -83 5 8 23 107 90 226

None IO 31 -122 -320 0 8 61 2 36 251

(c) Detail report - risks

Label Wght GI G2 G3 CfRI CfR2 CTR3 CORI COR2 COR3

Brand loyalty 84 175 -270 240 63 312 273 193 437 344

Supplier image 64 125 -197 38 25 127 5 174 433 16

Recommendation 57 -82 -72 -167 IO 15 90 84 65 344

Demonstration 33 862 59 -351 619 6 235 843 4 140

Communicate needs 80 -98 47 36 19 9 6 254 59 35

Encouragement to communicate 67 -54 22 52 5 2 10 86 14 78

Do homework 62 163 285 80 41 257 22 199 606 47

Supplier information 70 95 205 174 16 151 121 102 473 341

Expertise 92 -38 66 68 14 21 24 167 121 129

Appearance/manner of staff 62 -215 -3 -105 71 0 38 577 0 136

Appearance of facilities 62 -46 -169 -138 3 91 67 25 336 224

Dependability 72 --68 2 -25 8 0 2 129 0 17

Prompt action 51 -145 -4 -140 27 0 57 187 0 174

Trust and confidence 83 -32 43 2 8 0 52 92 0

Caring, individualized attention 62 -225 20 -116 77 47 600 5 161

placed on the interaction process with the customer. This is The risk of loss of control is associated with equipment- consistent with the relationship marketing paradigm put for- based services (such as a car service, television repair, dry ward by Gronroos (l 991; 1994 ). cleaning and photographic developing). An understanding

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Table 5 Product/risk reduction strategy groupings

Characteristic strategy Trial or demonstration 2 Brand image 3 Information search

Chacacteristi c puducts Durable goods Consumer goods Financial services 4 Tangible evidence, responsiveness General services

and recommendation

S Communication and expertise Goods and equipment-based services where demonstration is possible

that buyers of this category of services need reassurance that the necessary technological expertise is available again points to the need for an emphasis on the customer interaction process and relationship marketing. While loss of control has not previously been identified as a specific class of risk, Armi- stead (1989) identifies that 'feelings of being in control' are part of the 'steering' dimension of customer service. This link between perceived risk and customer service implies that the successful management of this risk is likely to be directly re- flected in customers' perceptions of the quality of service provided.

This study provides further empirical evidence that a simple classification of products in terms of goods and services is inadequate. In terms of risk and risk reduction strategies, there are classes of goods, classes of services and hybrid classes of goods and services. Also, risk reduction strategies tend to be product specific and not risk specific. Management should thus be wary of following generic marketing strategies that are based on either the simple categorization of products into goods or services, or, generic risk reduction strategies based on type of risk.

Implications for future research

From the summarized results presented in Table 5, it is interesting to note that the risk reduction strategies of triaV demonstration, brand image. the provision of tangible evidence, information search and the communication of expertise are readily addressed by the promotional element of the marketing mix (Borden, 1964). However, being responsive to customers and relying on the recommendations of others require marketing efforts that are not readily in- corporated into the traditional elements of the marketing mix.

Relationship marketing (Gronroos, 1991; 1994) represents a more meaningful approach to the development of these types of risk reduction strategies as well as the management of specification and loss of control risks. This indicates the need for the development or updating of the 4P marketing frame- work (usually attributed to McCarthy, 1960) into a richer paradigm that specifically recognizes services and hybrid products.

Although this exploratory study was conducted using a limited set of products and using relatively small and geo- graphically restricted samples, some useful insights have re- sulted. Future research could confirm these findings for different product sets using larger samples based on a wider geo- graphical base.

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